2014 economic forecast shows slow growth - East Valley Tribune: Capitol Media Services

2014 economic forecast shows slow growth

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Posted: Wednesday, December 4, 2013 1:00 pm

Arizona's economy won't recover until more people move here, but more people won't move here until the unemployment rate drops.

That conundrum was pretty much the consensus Wednesday of a panel trying to read the tea leaves about what the state's economy will look like in 2014 and beyond. And the bottom line is that the state will see about a 2 to 2.5 percent growth, in line with the slow recovery seen this year and far below what was the pre-recession pattern.

The underlying problem is that the state economy remains linked to more people.

“We've always depended on population flows to be one of the key drivers of any recovery,” said Lee McPheters, a professor at the W.P. Carey School of Business at Arizona State University. “We've never had any recovery that was not accompanied by population flows from other states.’

Elliott Pollack, who runs an economic and real estate consulting firm, said that the rate of growth is about half of what it was a decade ago.

The problem, though, is that some of that is beyond Arizona's own control.

Pollack said there are still a large number of people living elsewhere who are “under water’ on their mortgages, owing more than the property is worth. And even many of those who are not have so little equity in their property that they cannot pack up and move.

He also said people moved to Arizona because the jobless rate here was very low in comparison to the rest of the country.

In 2007, before the economy went into the dump, the average jobless rate in the state was 3.8 percent. A decade before that it was 4.6 percent.

“We created a lot of jobs,” Pollack said. And when those people moved here, he continued, that created a demand for goods and services, leading to “explosive” growth.

Now it is languishing above the 8 percent range, higher than the national average.

“We're not creating a lot of jobs,” Pollack said.

“So we're filling the jobs locally,” he said. “There's no need for people to move here.”

McPheters said all that hit Arizona especially hard because at one time there were about 250,000 people in the construction industry. That is close to one job out of every 10, double the national average.

Half of them are gone.

“Those 125,000 construction jobs are not going to come back any time soon,” McPheters said.

Pollack has another theory behind Arizona's lackluster recovery: legislative approval in 2010 of SB 1070. That measure contained a number of measures designed to make it easier for police to detain and arrest those suspected being in this country illegally.

Much of the measure has been sidelined by federal courts, but a key provision requiring police to inquire about the immigration status of those they suspect are undocumented remains.

More to the point, said Pollack, is the message.

“It appears that the sign the Legislature decided to put out which said, ‘if you're an illegal migrant we don't want you here’ is being read by the rest of the world as ‘If you're a migrant, we don't want you here,’” he said. “In a country based on migrants, that's a real problem.”

Lee Ohanian, a professor at the University of California-Los Angeles, did not address SB 1070, but he said that economic recovery overall is dependent on Congress approving immigration reform.

“We make it very difficult for the most talented and creative and ambitious skilled workers and entrepreneurs to stay in this country,” Ohanian said. “Half of the most successful startups in the last 10 years have been either started or cofounded by an immigrant.”

No one who spoke Wednesday seemed to believe that the state, which has lowered its corporate income tax rate and provided various other forms of tax relief, needs to do more.

In fact, McPheters said the state needs to be concerned that it has enough in revenues to invest in both education and infrastructure. And Pollack said what's been done so far are the seeds for future recovery.

“They take a long time to bear fruit,” he said.

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